The Yen Round-Trips After Japanese Pay Beats Its Forecast

Japanese pay grew faster than forecast in August and the Yen weakened anyway. USD/JPY trades near 158.00, back where it was before the release took it to its highest since September 25.

Nominal pay rose 3.8% YoY against a 3.7% forecast, but that was down from July, and real wage growth slowed for a second month to 1.5%. The same release revised July down to 4.3% from 4.7%, a cut four times the size of the beat.

Pay running ahead of prices is the case the Bank of Japan (BoJ) makes for further hikes, and a slowing trend did nothing to bring the next one forward. That leaves USD/JPY following the Dollar side of the pair for most of October.

Tokyo calls the Yen undervalued and promises a tax cut

Prime Minister Takaichi told parliament on Tuesday she will cut the consumption tax on food without issuing new bonds. The 10-year Japanese government bond yield held near 3.11% on Wednesday, close to its highest in three decades. Yields that rise on budget worries rather than rate expectations can weaken a currency instead of lifting it.

Finance Minister Katayama and US Treasury Secretary Bessent called the Yen's undervaluation a concern in late September. Wednesday's Federal Open Market Committee (FOMC) minutes recorded the New York Fed's currency intervention for the Treasury, the yen purchase made alongside Japan on July 31 with USD/JPY just under 164.00. Undervalued is the word two finance ministries use for a currency they have already spent money on once.

A BoJ quarter-point is a tenth of the gap it would narrow

The BoJ's rate is 1.25% after the September 18 hike, against the Fed's 3.75%-4.00%, and futures give the BoJ about 71% odds of another move by December. The Fed on October 28 and the BoJ on October 30 carry the same odds of a hike, near 17%.

Friday's University of Michigan (UoM) survey at 14:00 GMT includes US households' one-year inflation expectations, 4.6% last month. A higher reading would add to Fed hike bets and lift USD/JPY with them.

Yen levels around the moving averages

Resistance: Wednesday's high, just above 158.50, was the highest since September 25 and faded within the session. 159.00 stopped the September rebound on September 24.

Support: The 200-day Exponential Moving Average (EMA), just under 158.00, has been below every daily close since October 1. Monday's low, just under 157.50, is the line the long rests on.

Bias: The lean stays long while 157.50 holds on a closing basis, with 158.50, touched by a pip on Wednesday, still the first objective and 159.00 the second. The Stochastic Relative Strength Index (Stoch RSI) on the daily chart has turned down from about 85 to near 80, so a dip toward 157.50 would fit the call. A daily close below 157.00 takes the long off.

USD/JPY daily chart